Business Overview
ITE Group PLC is a media company engaged in organising international trade exhibitions and conferences in various emerging countries. The group arranges trade exhibitions and conferences every year globally with leading events for known brands in the major industry sectors. The company industry sector includes build and interiors, food, drink and hospitality, oil, gas and energy, travel and tourism, transport and logistics, mining, healthcare, medical and automotive. RWC Partners Limited, Brandes Investment Partners, L.P and Fidelity Management & Research Company are the largest stakeholders in the ITE Group Plc (source: Thomson Reuters).

M&A recent deals
On October 23, 2018,ITE Group completed the acquisition of 100% in the UK based mining indaba business of Euromoney Institutional Investor Plc for £30.1 mn. On July 17, 2018, the group announced the completion of 100% acquisition of the UK based exhibition services provider, Ascential Events Ltd for a total consideration of £300 mn.

H1 FY19 Trading Updates
On April 03, 2019, the group reported its trading update for the six months ended on March-31-2019. Total revenue surged by 42% to £107 mn as compared with the corresponding period revenue of £75 mn for the previous financial year primarily on account of additional acquired events Ascential and Mining Indaba and witnessed strong organic growth from core events including Africa Oil Week and YugAGro. On a like-for-like basis, reported revenue surged by 6% and excluding Acetech Delhi, where the company is facing venue constraints, their like-for-like revenue reported a surge of 8% respectively.  For six months ended March-31-2019, Net Debt stood at £114 mn and surged by £31 mn since September-30-2018, primarily on account of acquisition of Mining Indaba, Ascential Events integration investment and planned TAG, but remained in line with the management expectations.

Financial Performance – FY18 (£mn)

(Source: Annual Report, FY18)

ITE Group PLC reported headline sales of £175.67 million for the fiscal year ending September of 2018. This represents an increase of 15.1% versus 2017 when the company's sales were £152.62 million.
On the £175.67 million in sales reported by the company in 2018, the cost of goods sold totalled £107.60 million, or 61.25% of sales and the gross profit margin was 38.75% of sales. This gross profit margin is slightly lower than the company achieved in 2017.
The company’s headline operating profit stood at £38.7 mn, or 22.09% of sales.In FY18, headline profit before tax reported at £35.4 mn and headline profit after tax reported at £24.3 mn (attributable to the owners).Earnings per share for FY18 stood at 4.9 pence (headline nos.) and declined marginally from the EPS of 5 pence during FY17.

Stock Performance – 1 Year

Daily price chart (as on April 04, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (as on April 04, 2019 at 12:29 PM GMT), shares of ITE were quoting at GBX 74.0 and added 2.9 points or 4.07% against its previous day close. During past one-year shares have registered a 52w high of GBX 99.61 and a 52w low of GBX 55.40 and at the current price, as quoted in the stock chart, shares were trading 25.70% lower against its 52w high level and 33.5% above its 52w low price level. On a yearly basis, shares have delivered a price return of negative 27.08%, but on a year-to-date basis, stock has delivered a price return of 12%. The outstanding market capitalisation of the company stood at £527.79 mn and dividend yield stood at 2.71%, which is comparatively higher than the sector's dividend yield. At the current price level, the stock is trading above its 30-day, 60-day and 200-day simple moving average (SMA), which indicates the stock is in an uptrend and can go up further from the current level.

Valuation Methodology


Key Risks

1. Negative working capital.
2. Negative Return on Equity.
3. Brexit Uncertainties.
4. Foreign exchange risk.
5.  

Conclusion
ITE remains positive in achieving its FY19 expectations. Investment in product and operational improvements drive growth, despite some macro and FX headwinds, e.g. Brexit and Turkey. TAG programme is on track with the new HR system rolling out and the new ERP system still in development. Based on the above rationale and the valuation done using above methodology we have given a “Speculative BUY” at the closing price of GBX 71.1 (as on April 03, 2019) with lower double-digit upside potential based on 6.5x NTM Industry Mean EV/EBITDA (approx.) on FY19E EBITDA.
 
*The buy recommendation is valid for the current price as covered in the report as on (April-04-2019).
 

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